Do we really need business tax cuts for the big end of town ?

We are being told, mainly by CEOs of corporate business groups and business leaders that a lower company tax rate will result in increases in investment, employment and increases in wages..

The PM is also, with the Treasurer, trying desperately to prosecute the case for lower company tax rates for the big end of town and yet my general feeling is most people are calling Bullshit.. It is not so much that they have a strong view on the topic but in the absence of ANY clear data that a lower company tax rate will actually result in more employment or higher wages (for workers NOT CEOs!) there does not seem to be an appetite for the tax cuts.

So if you give a company a lower tax rate — noting taxes are paid on profits — them one of a few things will happen.

  1. Any savings on tax will be funnelled back into the company to allow for more employment .
  2. Savings on tax could also be funnelled back into wage increases for workers in the next year. Noting that there has been near flat wage increases in Australia for some time.
  3. Savings could be funnelled back into investment in other resources (ie not just people).
  4. Savings are used to increase dividends to shareholders which makes the company shares more valuable. This helps shareholders and helps any managers that hold company shares.
  5. Savings used to increase profits then flow into increased cash bonuses for management (as well as the increases in remuneration as a result of increased shares prices — see point 3 above).

So if we knew that 1,2 and 3 were actually going to happen and it was not just 4 and 5 then I think the greater masses might be more pre-disposed to the idea of a lower company tax rate..However nobody is prepared to put a stake in the ground to say that the tax savings will ONLY go to 1,2 and 3..

We see that Business Council of Australia chief executive Jennifer Westacott is very keen to convince everyone that we desperately need the company tax cuts. Will the BCA put up a list of companies that use any lowering of tax rates to just fuel increased executive pay and share price on some black list for us all to see…Because if that is all that happens then all we have done is taken tax money (that generally goes to things that help ALL Australians) and given the money to a small group of mainly elderly Australians that own a shit ton of shares and an even smaller group of already overpaid senior executives.

So if anybody thinks I am being alarmist or “bashing business” or grossly unfair then please show me how we can be sure that any tax cut will not just help the few but actually help all (as taxes tend to do)…Prosecute your case with crisp data and guidelines that deliver on the promised increase in employment and wages.

Oh and please do not use the current clusterfuck that is the US tax cut regime changes as a good example. As The Economist wrote up last week, the US tax cuts will explode the deficit and create a massive issue for generations into the future. Also the ONLY U.S. companies that are talking about new investment are those that are repatriating $B from overseas accounts — this is not the same regime as a change in domestic tax rates for normalised profits…and in any case Australia does not have the sort of cash shenanigans that those in the US have been playing.

Back to the central thesis..If the PM. Treasurer, head of the BCA think is it so blindingly obvious that we need company tax cuts for the big end of town then please show us (i.e. all Australians) the money!